Key Trends:

Aggregate trends

1. On aggregate, municipalities spent 21.4 per cent, or R104.6 billion, of the total adopted expenditure budget of R489.4 billion as at 30 September 2020 (first quarter results for the 2020/21 financial year). In respect of revenue, aggregate billing and other  revenue amounted to 26.2 per cent, or R126.8 billion, of the total adopted revenue budget of R484.3 billion.
2. Of the adopted operating expenditure budget amounting to R419.3 billion, R96.2 billion or 23 per cent was spent by 30 September 2020.
3. Municipalities have adopted the budget for salaries and wages expenditure at R126.5 billion, which is R1.6 billion more than the adopted budget of R124.9 billion for the 2019/20 municipal financial year. This constitutes 30 per cent of their total operational expenditure budget of R419.3 billion. At 30 September 2020, spending on salaries and wages is 24 per cent, or R30.4 billion.
4. In the period under review, capital expenditure amounted to R8.4 billion, or 12 per cent, of the adopted capital budget of R70.1 billion.
5. Aggregated year-to-date operating expenditure for metros amounts to R58 billion, or 23.4 per cent, of their adopted budget expenditure of R279.7 billion. The aggregated adopted capital budget for metros in the 2020/21 financial year is R31.6 billion, of which 10.1 per cent, or R3.2 billion, has been spent as at 30 September 2020.
6. When billed revenue is measured against their adopted budgets, the performance of metros reflects a shortfall on electricity services for the first quarter of the 2020/21 financial year.  This does not take into account the collection rate:
   • Water revenue billed was R6.5 billion against expenditure of R6.4 billion;
   • Energy sources revenue billed was R21.8 billion against expenditure of R22.1 billion;
   • The  revenue  billed  for   wastewater   management  was  R1.9  billion  against expenditure of R1.6 billion, and
   • Levies for waste management billed were R2.9 billion against expenditure R2.1 billion.
7. As at 30 September 2020, aggregated revenue for secondary cities is 34.7 per cent or R23.2 billion of their total adopted revenue budget of R66.8 billion for the 2020/21 financial year. The year-to-date operating expenditure level of the secondary cities is 27.3 per cent or R18.6 billion of the total adopted operating budget of R68.2 billion for the 2020/21 financial year.
8. The performance against the adopted budget for the four core services for the secondary cities for the first quarter 2020/21 also shows surpluses against billed revenue without taking into account the collection rate:
   • Water revenue billed was R3.8 billion against expenditure of R2.5 billion;
   • Energy sources revenue billed was R7.7 billion against expenditure of R7 billion;
   • The  revenue  billed  for  wastewater   management  was  R1.1  billion  against expenditure of minus R630 million; and
   • Levies for waste management billed were R876 million against expenditure of R569 million.
9. Capital spending levels are high at an average of 30.2 per cent or R2.2 billion of the adopted capital budget of R7.2 billion. This is due to Msunduzi overstating their year-to- date capital revenue.
10. Aggregate municipal consumer debts amounted to R194.2 billion (compared to R164.2 billion reported in the first quarter of 2019/20) as at 30 September 2020. A total amount of R20.8 billion, or 10.7 per cent, has been written off as bad debt.  Government accounts for 8.7 per cent, or R16.1 billion (R14.8 billion reported in the fourth quarter of 2019/20). The largest component relates to households which account for 69 per cent, or R133.9 billion (69.9 per cent or R133.9 billion in the fourth quarter of 2019/20).
11. It needs to be acknowledged that not all the outstanding debt of R194.2 billion is realistically collectable, as these amounts are inclusive of debt older than 90 days (historic debt that has accumulated over an extended period), interest on arrears and other recoveries.
12. If consumer debt is limited to below 90 days, then the actual realistically collectable amount is estimated at R39.4 billion. This should not be interpreted that the National Treasury by implication suggests that the balance must be written-off by municipalities.
13. Metropolitan municipalities are owed R78.9 billion (R83.1 billion reported in  the first quarter of 2019/20) in outstanding debt as at 30 September 2020. This represents a decrease of R4.2 billion. The largest contributors are the City of Ekurhuleni, which is owed the largest amount at R18.1 billion, followed by City of Tshwane at R17.4 billion, eThekwini at R14.9 billion, and Cape Town at R9.9 billion.
14. Households in metropolitan areas are reported to account for R52.2 billion, or 66.3 per cent, of outstanding debt to metros, followed by businesses, which account for R22 billion or 27.8 per cent. Debt owed by government agencies is approximately R4 billion, or 5.2 per cent, of the total outstanding debt owed to metros.
15. Secondary cities are owed R49 billion (R32.6 billion reported in the first quarter of 2019/20) in outstanding consumer debt. The majority of debt is owed by households, which amount to R36.5 billion, or 74.7 per cent, of the total outstanding debt. An amount of R42 billion, or 85.6 per cent, has been outstanding for more than 90 days.
16. Municipalities owed their creditors R65.2 billion as at 30 September 2020, an increase of R23.7 billion when compared to the R41.5 billion reported in the first quarter of 2019/20.
17. Municipalities in the Free State have the highest outstanding creditors greater than 90 days at R13.3 billion, followed by Mpumalanga at R11.1 billion and Gauteng at R4.8 billion.

18. The total balance on borrowing for all municipalities equates to R72.6 billion as at 30 September 2020. This includes long term loans of R50.6 billion, long term marketable bonds of R11.6 billion and other long term non-marketable bonds of R6.9 billion. The balance represents other short- and long-term financing instruments.
19. As at 30 September 2020, the total investments made by municipalities equates to R33.9 billion. This is R5.5 billion more than the R28.4 billion reported in the first quarter of 2019/20. Investments include bank deposits of R28.5 billion, guaranteed endowment policies (sinking funds) of R4.5 billion, listed corporate bonds of R884 million and some smaller investments.

Conditional Grants

Conditional Grants Expenditure as at 30 September 2020

20. According to the 2020 DoRA, R132.5 billion has been allocated to local government in the 2020/21 financial year. This amount comprises of the unconditional transfer of the Equitable Share (R74.6 billion), direct conditional grants allocated for capacity building (R1.9 billion), direct conditional grants for infrastructure projects, (R41.8 billion), and the Indirect conditional grant of R7.5 billion.
21. As at 30 September 2020, an amount of R10.9 billion was transferred to municipalities in respect of direct conditional grants, which is 33.8 per cent of the 2020/21 direct allocation.
22. The overall expenditure against direct conditional grants reported by municipalities through the transferring national officers responsible for grant administration as at 30 September 2020 is 11.1 per cent or R3.6 billion against the R10.9 billion transferred to municipalities in the first quarter.

Capacity Building and Other Conditional Grants Expenditure as at 30 September 2020

23. A total of R1.9 billion is allocated to capacity building and other grants. These grants are intended to assist municipalities in the development of their management, planning, technical, budgeting and financial management capabilities in the 2020/21 financial year.
24. The highest performing conditional grant under this category during the first quarter is the Expanded Public Works Programme (EPWP) with reported performance of 25 per cent, followed by the Municipal Disaster Relief Grant (MDRG) at 16.7 per cent and the Infrastructure Skills Development Grant (ISDG) at 16.1 per cent.
25. The lowest-performing grant in the first quarter ended 30 September 2020 is the Financial Management Grant (FMG) which reported expenditure performance of 13.6 per cent. The low expenditure reported on the grant is as a result of the grant-making a once of transfers as opposed to the other grants which are transferred in tranches over a period of months e.g. say one transfer each quarter.

Infrastructure Conditional Grants Expenditure as at 30 September 2020

26. National transfers for infrastructure, excluding indirect or in-kind allocations to Transferring Officers executing specific projects on behalf of municipalities in the municipal area, amounts to R28.6 billion in the 2020/21 financial year.

27. The highest performing direct grants to municipalities during the first quarter is the Integrated Urban Development Grant (IUDG) which reported performance of 17.3 per cent, followed by the Municipal Infrastructure Grant (MIG) which reported performance of 17.3 per cent, and the Neighborhood Development Partnership Grant (NDPP) grant with the reported performance of 13.9 per cent.
28. The lowest spending grant under the infrastructure grants during the first quarter is the Regional Bulk Infrastructure Grant with the expenditure of 6.8 per cent which is equivalent to R135.8 million against the allocation of R2 billion. The second-lowest performing grant, also a water grant, is the Water Services Infrastructure Grant (WSIG). This poor expenditure is worrisome and delays the provision of basic services to communities.
29. Indirect grants (Infrastructure and capacity) allocated to municipalities regressed from R6.9 billion to R5.8 billion in the 2020/21 financial year. Indirect grants are allocations whereby the National Transferring Officers are responsible for implementing and administering the grants. Performance monitoring for these grants are not included as part of the Section 71 publications because municipalities do not receive these allocations directly (allocations in-kind). Reporting on these transfers should be included in Section 40 reporting requirements for National Department as articulated in the Public Finance Management Act, 1999 (Act No. 1 of 1999). These reports are submitted monthly to the National Treasury’s Public Finance Division.

A summary of key aggregated information is included in the tables in Annexure A.

Further details on this report can be accessed on the National Treasury’s website: www.treasury.gov.za.

Note to editors:

• This information is published in terms of Sections 71 of the Municipal Finance Management Act, 2003 (Act No. 56 of 2003) (MFMA), and 30(3) of the 2020 Division of Revenue Act. The budgeted figures shown are based on the 2020/21 adopted budgets approved by municipal councils.
• In terms of the process, Municipal Managers and Chief Financial Officers were required to sign and submit data to the National Treasury by 30 October 2020. Any queries on the figures in these statements should be referred to the relevant Municipal Manager or Chief Financial Officer. Queries on conditional grants may be referred to the national department responsible for administering the grant.
• A municipal budget must be funded in terms of Section 18 of the MFMA before a Municipal Council can adopt that budget for implementation. A funded budget is essentially a budget that is funded by a combination of cash derived either from realistically anticipated revenues to be collected in that year, and cash backed surpluses of previous years. It is a common practice amongst most municipalities when preparing their annual budgets, to overstate or inflate revenue projections, either to reflect a surplus or on the surface to show that excess expenditure requirements are adequately covered by revenues to be collected. Therefore, the revenue estimates are seldom underpinned by realistic or realisable revenue assumptions resulting in municipalities not being able to collect this revenue, and as a result finding themselves in cash flow difficulties. Should such situations arise, municipalities must adjust expenditure downwards to ensure that there is sufficient cash to meet these commitments.
• This first quarter publication covers 257 municipalities on financial information and conditional grant information.